Construction industry set for downturn on back of weak property market

The construction sector continued to flounder during December as housebuilders recorded their lowest level of activity for 20 months, new figures showed today.

The latest Markit/CIPS Purchasing Managers' Index (PMI) survey - where a reading above 50 indicates growth - slipped to 49.1 in December from 51.8 in November.

Bad weather was partly blamed for causing massive delays to work.

Tumbling down: The construction sector took a tumble during December as housebuilders recorded their lowest level of activity for 20 months, new figures showed today

The downturn was led by the housebuilding sector, which suffered its worst performance since April 2009 and its fourth consecutive month of decline as the weakening property market led to a slowdown in new projects.

David Noble, chief executive at CIPS, described the survey as 'a disappointing end to the year for the UK construction sector'.

He added: 'A major worry is the situation in the housing market. Proposed measures to further tighten regulations on mortgage lending may only serve to intensify this worry into a longer, more protracted year of concern.'

Civil engineering activity also fell into decline in December as the Government's austerity cuts began to bite.

Commercial building was the only sector that continued to expand, although its rate of growth was the slowest for 10 months.

The figures are worrying because earlier this year the construction industry rebounded strongly from a deep contraction in the recession and was a major factor behind the UK's economic growth in the second and third quarters of 2010.

While the construction sector only accounts for 6.3 per cent of GDP, it was responsible for half of the 1.1 per cent GDP growth in the second quarter and around a quarter of the 0.7 per cent GDP growth in the third quarter.

Howard Archer, chief economist at IHS Global Insight, said: 'Even allowing for the hit to activity coming from December's severe weather, it is very clear that the economy cannot rely on a major contribution from construction going forward.'

The number of people employed in the construction industry fell sharply in December as anecdotal evidence showed companies made further redundancies.

Construction companies also reported the highest inflation in the price of building materials for seven months.

One of the few positives to come out of the report showed a modest rise in new business, with contract wins accelerating since November, although the rate remained below average.